It is sad that modern capital markets have gotten to a point when neither fundamental nor technical analysis matters. The only question is how many dollars with the Federal Reserve print tomorrow and how higher will that push stocks. For those deluded amongst you who still believe 10,000x EV/EBITDA is marginally to quite-marginally rich, and don't feel like chasing trends and passing the hot potato to the latest Down syndrome afflicted E-Trade client, here are some observations on arguably the most overbought (by a metric mile) sector, REITs, courtesy of masters of the (metric) universe, Goldman Sachs.
In short: at some point in the near to very far future, REITs are going to get pounded. Why? Cause the 85 Broads said so:
The GS REIT Team view: Focus on names best positioned to “capitalize from the crisis”
- Cautious coverage view: we expect relative underperformance versus the broader S&P 500 Index as CRE trends lag the economy by 12-18 months.
- Our total return forecast: flat to down 15% (which equates to a price-only decline of 20%-25%)
- Primary concerns: valuation still unfavorable, deteriorating growth trends, challenging funding market (over $75 mn still tough to do)
- CRE values declining: cap rates to increase 300-500 bp from the lows, or a price decline of 30%-40% from peak levels
And some highlights of why Goldman believes REITs could be in for a protracted period of pain.
Not like any of that matters. The more troubled a sector is, the more likely it is that the government will shortly bail it out, of course. As such, it makes a lot of sense to be imprudent and follow Jim Cramer's advice: "if it has not filed for bankruptcy yet, it can only go higher." Vaya con dios.